New credit ratings agency promises reforms
June 29, 2013, 4:22 am

Founders of a new global credit rating agency have said the approach of the existing top three agencies are flawed.

“We have looked at their results over a period of time. The Big-3 each appear to us to use a single standard to measure all companies: they view all economies as if they were the US economy and all business environments as if they are in New York. This is patently untrue,” Richard Hainsworth, the President of RusRating told The BRICS Post.

Rating agencies from China, Russia and the United States officially launched a new credit rating company in Hong Kong on Tuesday to challenge the current industry leaders and promote reforms in the global rating system..

Founding members of the new UCRG are China-based Dagong Global Credit Rating Co. Ltd, Egan-Jones Ratings Co of the United States, and Russia’s RusRating JSC.

The new joint venture, the Universal Credit Rating Group (UCRG), will be both a complement and a challenge to the existing rating companies.

“I suppose, UCRG will be both a complement and a challenge. Anything new is a challenge to an existing system, but that system is not going to disappear, so both will continue to co-exist,” Hainsworth said on Friday.

The “Big Three” global credit rating agencies, all based in the U.S. – Standard and Poor’s, Moody’s, and Fitch Ratings have been criticized for their favorable pre-crisis ratings of insolvent financial institutions like Lehman Brothers.

“It is very clear to us from our interactions with investors, regulators, academics, politicians and journalists that a new player is anticipated very widely,” Hainsworth says.

But many analysts point out that ‘reputation’ is an important prerequisite for a rating agency and even though UCRG has been long awaited for, it will need to build its reputation to become a significant player.

UCRG says it seeks to construct a “dual rating” system, different from the current one and providing international and local dimension.

“A rating system provides a way of comparing companies in terms of their credit worthiness. This is not a single value for any company, but a region or space that depends on many-many factors. So it is important to try to measure and understand a company’s credit worthiness from many perspectives. We intend to provide both a local dimension and an international dimension – two ratings,” Hainsworth explained.

57 founding members, many of them prominent US allies, will sign into creation the China-led Asian Infrastructure Investment Bank on Monday, the first major global financial instrument independent from the Bretton Woods system.

Representatives of the countries will meet in Beijing on Monday to sign an agreement of the bank, the Chinese Foreign Ministry said on Thursday. All the five BRICS countries are also joining the new infrastructure investment bank.

The agreement on the $100 billion AIIB will then have to be ratified by the parliaments of the founding members, Chinese Foreign Ministry spokesman Lu Kang said at a daily press briefing in Beijing.

The AIIB is also the first major multilateral development bank in a generation that provides an avenue for China to strengthen its presence in the world’s fastest-growing region.